TY - JOUR AB - Employing a Hausman–Taylor instrument variable (HT–IV) estimator to data from 558 microfinance institutions (MFIs) in 80 developing countries for the period from 2002 to 2007, this paper provides empirical evidence for a positive impact of a country's external governance quality and outcome on local microbanks' economic success in terms of profitability and sustainability. Evidence as well suggests a negative relationship between external governance and the microbanks' social success measured by the depth of outreach. In this context, our analysis reveals that a country's political stability, governance effectiveness, regulatory quality and rule of law are significant key elements of external governance affecting the MFIs' functional performance. Moreover, results from sensitivity analyses indicate that the relationship between external governance quality and microfinance functional performance significantly depends on the microbanks' business concepts, their lending methodologies and sources of funding. AU - Uhde, André AU - Müller, Oliver ID - 4398 IS - 2/3 JF - International Journal of Monetary Economics and Finance KW - microfinance KW - external governance KW - economic success KW - social success KW - developing countries KW - profitability KW - sustainability KW - microbanks KW - outreach KW - political stability KW - governance effectiveness KW - regulatory quality KW - rule of law KW - governance quality KW - lending methodologies KW - funding sources TI - External governance outcome and microfinance success VL - 6 ER -